RSS FEED
Adapt or die
Published: 2009-09-22 08:23:57
The past 12 months have seen the UK property market turned on its head. Sites that were once developers' most prized assets have become expensive millstones around their necks as demand for residential and commercial property has slumped.(Sourced from Regeneration & Renewal.)
The public sector has suffered from the same malaise. For local authorities and other public bodies, control of land has been one of their chief bargaining chips in dealings with private developers. Encouraged by rising property values during the middle years of this decade, the public sector began to develop sophisticated partnerships in an attempt to attract private investment. One of the most popular of these new arrangements has been the local asset-backed vehicle (LABV), a series of which have sprung up over the past five years (see box). However, with development sites reduced to a fraction of their former value, the attractiveness of LABVs to the public and private sectors is now being questioned.
LABVs are partnerships with equal public and private sector ownership, whose purpose is to regenerate an area. Public sector assets, such as land or property, are invested into the vehicle, with the private sector partner providing funding of an equivalent value. The LABV then uses these assets to raise further funds from banks and other lenders to carry out regeneration projects.
One half of the LABV model involves public sector assets, and it is this that poses a difficulty for the partnerships because the assets' value has plummeted since the start of the property crash. George Grace, a partner in developer King Sturge's consultancy department, says: "Some councils are questioning whether LABVs are still relevant; residential property has lost 20 per cent of its value, but development sites have lost over 70 per cent. They are asking: 'Why would we put our assets into a partnership at a discounted value?'"